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Dollar fall pushes gold above 450 { November 26 2004 } Original Source Link: (May no longer be active)
http://www.nytimes.com/2004/11/26/business/26gold.htmlhttp://www.nytimes.com/2004/11/26/business/26gold.html
November 26, 2004
Dollar's Fall Pushes Gold Above $450
By ALAN COWELL
LONDON, Nov. 25 - With the dollar hitting a third straight day of record lows against the euro on Thursday, gold rose above $450 an ounce for the first time in more than 16 years, driven by investors looking for an alternative to the American currency.
"Gold bulls should be dancing in the street," Barclays Capital said in an investment note. Gold, which is priced in dollars, has risen by about 13 percent in the past two months.
The newest high for the euro came in light European trading with American markets closed Thursday for the Thanksgiving holiday. The euro touched an all-time high of $1.3282 before settling back slightly.
Gold - a traditional safe haven in troubled markets - reached $452.75 in London trading before easing back to $450.15. It had closed a day earlier at $448.50. Thursday's peak was the highest for gold since June 1988.
Kamal Naqvi, a precious metals analyst with Barclays Capital, said investors might well push gold prices higher, toward $455 or $460, and other analysts suggested it could go a lot higher if the dollar weakens further.
"A number of people in the gold market are coming in assuming further losses in the dollar," Mr. Naqvi said.
Some analysts noted, however, that the increase in the gold price had not been matched by gains in gold-mining company stocks, suggesting that investors were not convinced gold would hold its current highs.
The weakness of the dollar affects the earnings of gold mining companies in countries like South Africa, where gold is the biggest export. The surging gold price on Thursday pushed the South African currency, the rand, close to its highest level against the dollar in five years. But that may not benefit gold-mining companies.
"Many gold companies are unlikely to receive the full benefit for the higher U.S. dollar-gold price due to the appreciation of their currencies, such as the Canadian dollar, Australian dollar and South African rand," the Barclays Capital note said.
The rise in the rand, moreover, reflected the broader debate about the extent of the dollar's decline, which many banks have attributed to the size of the deficit in the United States current account, the broadest measure of American trade.
Some analysts in London said the dollar's weakness against the euro could be countered by European moves such as intervention in the market by the European Central Bank or sales of euros by European commercial banks. Those moves, in turn, would affect the price of gold.
"All you need is just signs that we are approaching something like a top" in the rise of the euro, said Mr. Naqvi. "Stability of the euro would be sufficient for a correction in gold. The most logical indication would be some show of concern from European policy makers."
Indeed, European officials are under pressure to slow the euro's rise, because a strong euro makes much of continental Europe's exports more expensive, adding to other economic woes. A key German indicator on Thursday showed that German business confidence was at its lowest in more than year.
The counterargument is that the problem is with the dollar itself, since its weakness is showing against an array of currencies, including the Swiss franc, the British pound and the yen, not just the euro.
In South Africa, Trevor Manuel, the finance minister, seemed to rule out action to slow the rise of the rand, saying: "The problem is not the rand. The problem is the dollar."
The remark echoed a similar argument among some analysts in London. "It's an overall dollar problem, and I think the worrying problem for the dollar is that most people are coming around to this point of view," said Tony Norfield, the head of foreign exchange strategy at ABN Amro.
"The chance of intervention from the European Central Bank is pretty close to zero and we don't see any grounds for Japanese intervention," Mr. Norfield said. "The onus is really on the American side."
Copyright 2004 The New York Times Company
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